What will be the cost of the loans that benefit from these term extensions?

The costs of covid loans that benefit from the extensions provided for in Royal Decree-Law 34/2020 of November 17 will remain in line with the costs charged before the extension, and may only be increased to reflect an increase in the remuneration of the endorsement.

The remuneration of the guarantee in these operations is included in the Agreement of the Council of Ministers of November 24, which establishes the following:

  • For operations with freelancers and companies that receive public aid (including endorsed loans managed by the ICO for which an extension is requested in the term of the expiration of the operations, that it had with one or more financial entities) for an equal or lower total to 800,000 euros to 120,000 euros if the company belongs to the fishing or aquaculture sector, to 100,000 euros if the company belongs to the sector of primary production of agricultural products, the cost of the guarantee for the term extended from the modification of the expiration period will be the one initially applied to the financing operation.
  • For the rest of the operations that exceed the previous limits (general of 800,000 euros and sector-specific), the remuneration table set out in the Agreement of the Council of Ministers of November 24 will be applied from the extension. This cost will be calculated for the period from the start of the operation until the expiration date.

Here is the crux of the matter and that is, despite the fact that many experts interpreted after the promulgation of Royal Decree 11/2020 that there were not going to be any increases in the interest rate, the reality seems to be different.

The banks have already begun to send the documentation to process the extension of the guarantees and some applicants have found a rather unpleasant surprise: the interest rate that will be applied to

From now on it will be higher, even by more than one percentage point, than they had in their initial contract . They go from 1.60% of interest to a rate of 2.90%.

The response of the Official Credit Institute to inquiries made by the affected sectors has not been long in coming:

  • If the ICO operations signed by the company exceed 800,000 euros (limit by which the European Commission considers that it is not public aid and, therefore, does not need express authorization), a commission may be applied in addition to an increase in the rate of interest
  • If the ICO operations signed by the company are less than that amount or the sectoral limits indicated above, it will have no cost ”, as in the cases in which an increase of 12 months of grace is requested.

Keep in mind that the guarantees have a price that depends on the contracted repayment period, and therefore, almost all financial institutions have decided to pass it on to you. Be attentive, read the fine print, and negotiate, if you can 

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